As anyone not in a coma understands, Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) is a massive company. As it stands right now, it is the world’s second-biggest company by market capitalization; only Apple Inc. (NASDAQ:AAPL), with its $886 billion market cap, is bigger. However, with its size, questions inevitably arise about the GOOGL stock price.
Some of the arguments are direct and to the point. Others are much more nuanced. Generally speaking, current bearish arguments center on the theme that GOOGL stock may have peaked.
Although I like my chances with Alphabet, I have to be honest: the critics raise valid issues. The growth phase for GOOGL shares is clearly long gone. Now, where do we go from here?
Yes, Alphabet dominates the search engine market. They acquired valuable assets, such as YouTube. As InvestorPlace contributor Dana Blankenhorn notes, Google, “along with Facebook Inc. (NASDAQ:FB), represents 25% of all advertising spending.”
They’re also making inroads in sectors that you wouldn’t expect from an internet company. For instance, Alphabet is aggressively investing in their self-driving vehicle project. If successful (and who would doubt them?) GOOGL stock could be a great value, even at these elevated levels.
Moreover, we shouldn’t forget that Alphabet isn’t all razzle-dazzle. Financially, they’re built like a tank. They’re still growing the top and bottom lines by double digits, which is more than what many companies can say. Impressively, they’re doing all of their “Google-y” things without racking up huge amounts of debt.
With all that said, Alphabet’s many positives have to justify the GOOGL stock price. Without enough investors believing that the company can make further gains, GOOGL could suffer unwelcome volatility.
Unnecessary Drama Hinders the GOOGL Stock Price
It’s strange to call an investment that has returned 32% for the year a laggard. Yet that’s exactly the situation GOOGL stock is in. While it has performed exemplarily well, it lags the other “FANG” stocks, which include Facebook, Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX).
Nor is GOOGL lagging on a mere technicality. At minimum, the other three FANG members are up 50% year-to-date. Moreover, Alphabet seemingly finds time to attract controversy. As a buyer, that’s not something you want to see, especially because its tech peers currently offer superior returns.
These controversies are also worrying because I perceive many of them to be entirely unnecessary. For instance, Alphabet has steadily dived into politics. It’s a great idea for a non-profit organization. But for driving the GOOGL stock price higher? I wouldn’t put it in my list of priorities. Blankenhorn explains:
“Alphabet was closely associated with the Obama Administration, and Washington today hates anyone or anything so associated. The company also has enemies in China, which continues to block it, and Russia, whose sites the company is de-ranking so their alleged “fake news” is less visible.”
More problematic is that Alphabet refuses to backtrack from their political aggression. As our own Ian Bezek reported, the company cracked down on content they deemed offensive, alienating many users. Bezek writes:
“That said, Google’s recent move to de-monetize a lot of content creators threatens the ecosystem. Earlier this fall, YouTube began removing ads from much of its video content, taking the ax to anything deemed too controversial for corporate sponsors.”
I don’t have an issue with Alphabet removing content that is illegal or obscene. Where the slippery slope lies is, who gets to define “offensive content?”
GOOGL Has Too Many Moats to Topple
The concern, of course, is that anything can be deemed offensive to anyone. And Google’s strong association with the Obama administration raises suspicion that “offensive” is synonymous with “conservative” or “Republican.”
I freely admit that Alphabet’s politics, and their insistence on pushing their agenda is troubling. I personally have issues with any one company dominating how we use and enjoy the internet. But we’re not judging GOOGL stock based on its moral principles. Rather, is this a stock that my portfolio can trust?
I believe the answer is a strong yes.
For instance, the unnecessary drama surrounding YouTube is problematic. However, I can guarantee you that original content consumers are not clamoring for alternative platforms. In other words, YouTube is a moat, and for all practical purposes, it’s the only moat. Sure, it has warts, but a moat has the luxury of being imperfect.
The same thing can be said about Alphabet’s core internet services business. Listen, I love the self-driving technology as much as the next guy. But at the end of the day, its Google search engine and its Gmail provider are also moats.
As far as the GOOGL stock price is concerned, I think nearer-term challenges should be expected. Compared to other tech firms, I don’t see Alphabet having a singular, iconic product. Rather, I view the company as an inescapable reality, similar to income tax.
It’s not always pretty, but it’s going to get the job done, whether you like it or not.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
